Private Student Loans

Published on: March 10, 2025

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Searching for the best student loans

Private student loans come from a private lender rather than the U.S. government.

Federal student loans usually have the best terms and rates, but you might not always be able to get them. Maybe you’ve reached your maximum, you or don’t have the right immigration status.

Interest rates on private student loans can differ widely from lender to lender. Often, you’ll need a cosigner in order to get the loan, and the cosigner’s credit will also affect the rate you get.

If you need a private student loan, check with your school, your local credit unions or even your bank to see if they have any options. You should also review online student loan lenders, as some are very competitive.

On this page

Private vs. Federal loans
How do private student loans work?
Pros and cons of private student loans
The latest on private student loan interest rates
Find and compare private student loans
How to get a private student loan
Alternatives to private student loans

Private vs. Federal loans

	Private student loans	Federal student loans
Credit check	Required for most lenders	Not required, but a credit history review is needed for grad PLUS and parent PLUS loans
Cosigner	Most undergraduates use a cosigner, although not all lenders require one	Not always required, though you could need an "endorser" for parent or grad PLUS loans
Interest rates	Fixed and variable APRs (depending on your creditworthiness)	Fixed rates set by the U.S. government
Origination fee	Not typically charged by top-rated lenders	Fees charged, with different fees for Direct subsidized and unsubsidized loans vs. Direct PLUS loans
Annual borrowing limit	Up to 100% of cost of attendance	Annual and lifetime limits, depending on whether you're a dependent student
Repayment flexibility	In-school deferment and short-term economic hardship forbearance could be available (a few lenders offer unemployment protection and income-based repayment plans)	Change repayment plans at any time Variety of deferment and forbearance options Income-driven repayment plans available
Forgiveness programs	Not usually offered by lenders, though state and employer-run loan repayment assistance programs could be helpful	Many federal student loan forgiveness programs are available, plus additional ways to discharge your debt

Private student loans

Student loan companies set their own interest rates, often giving you a choice between a fixed or variable rate. Private lenders examine your financial credentials, such as your credit score and annual income. You might need to apply with a cosigner if you can’t qualify independently.

Borrowers generally have more flexibility with private student loans. Instead of being assigned a fixed-rate federal loan with a standard 10-year term, you might opt for a variable rate and a shorter or longer repayment plan.

Private education debt also tends to have a higher borrowing limit, allowing you to cover any gaps in your school’s cost of attendance. That said, it’s wise to only borrow what you need — and what you can afford to repay. Estimate your potential monthly dues using today’s rates and a student loan repayment calculator.

Federal student loans

The Department of Education issues federal student loans, with Congress determining the fixed interest rate each year. You won’t need to pass a credit check to qualify for most federal student loans, although PLUS loans require a review of your credit report to look for adverse credit history.

Federal loans are also eligible for a variety of repayment plans, such as income-driven repayment, deferment and forbearance, and various student loan forgiveness programs. However, you can’t borrow an infinite amount of federal loans — once you reach the federal student loan limit, you’ll need to consider additional ways to cover any remaining expenses.

How to maximize federal and free financial aid

Because federal student loans carry such wide-ranging repayment flexibility, it’s recommended to max out your federal loan allotment before resorting to a private student loan.

The Free Application for Federal Student Aid (FAFSA) is the gateway to federal loans and other aid programs. After completing the FAFSA, you’ll be eligible to accept loans offered by your school — but only up to the annual limit. Be sure to look for work-study opportunities and other grants listed on your financial aid award letter.

How do private student loans work?

For private student loans, you typically shop around with banks, credit unions and online lenders to find the best overall loan offer. Unlike federal loans, private loans are credit-based, so your eligibility and terms depend on your credit history. If you’re a student with a thin or poor credit file, you could improve your application by adding a creditworthy cosigner.

Once you’ve gained approval, your lender will certify the funding amount with your college or university. You may be allowed to borrow up to 100% of your cost of attendance minus other financial aid you expect to receive. The funds are usually disbursed directly to the school, with any excess amount credited to you later.

Your private lender may have a loan servicer that manages the repayment of your debt. Keep in mind that private loans have fewer safeguards if you run into trouble after leaving school, so consider them as a supplement to federal loans, rather than a substitute.

Pros and cons of private student loans

Private student loans can help with additional expenses not covered by financial aid. However, it’s worth weighing the pros and cons before taking on more debt.

Pros	Cons
Borrowers with robust credit might find rates lower than the standard federal rate Higher loan amounts — typically up to 100% of the cost of attendance Access to variable interest rates Often doesn’t include an origination fee Quick application process A range of unique perks and benefits, which might include: rate match guarantee, multi-year borrowing, member and loyalty rewards, part-time enrollment options, loans for non-matriculating students	No federal loan interest subsidies (i.e., subsidized loans) Unpredictability if you choose a variable interest rate Long-term financial burden for cosigners (not all lenders offer cosigner release) Fewer hardship protections than federal loans Limited student loan forgiveness programs May be quicker trigger to delinquency and default if you fall behind on payments Loans might not discharge upon the borrower’s disability or death Income-based repayment plans usually aren’t offered Usually have shorter repayment terms

The latest on private student loan interest rates

Student loan interest rates can fluctuate based on market conditions and inflation. The government determines the interest rate for federal student loans each year, based on the bond market. In contrast, private lenders can set whatever rate they want — although they typically remain competitive with the overall student loan environment.

When the cost of living increases, student loan rates tend to follow. With federal rates on the rise,some highly-rated student loan companies have also increased their rates.

It’s crucial to shop around to secure the most competitive rate between private student loan lenders. Keep up with your bills and maintain low credit card balances to increase your credit score, which can help unlock lower interest rates.

Find and compare private student loans

The FAFSA is the gateway toward federal loans, but finding a private student loan might require more legwork.

Here are some ways to jumpstart your research:

Talk to your school’s financial aid office about its potential list of approved lenders
Ask family members, friends and classmates for lender recommendations
Check with local credit unions or a bank where you’re a customer

Along the way, confirm that your preferred loan suits your purposes and that your school will approve the lender. Ultimately, your school will have the final say in certifying your loan.

Many will let you confirm your eligibility and check your rates online without impacting your credit score. By shopping around, you can find the best loan for you, reducing the long-term costs of borrowing.

The following factors can help you compare student loan lenders:

Fixed and variable APRs
Rate discounts
Fees for application, origination and prepayment
In-school repayment options
Choice of repayment terms
Cosigner release policy
Guaranteed protections, such as economic hardship forbearance
Other perks, such as credit score tracking
Lender ratings and customer service track records

How to get a private student loan

1. Shop for private student loans

Check interest rates and terms online and with your local financial institutions
Consider adding a cosigner to unlock better rates
Weigh secondary features, such as unemployment protections or special discounts
“Test-drive” the customer service teams of your potential lenders with any questions you have

2. Choose a loan and apply

If you prequalify, you will still need to officially apply for a private student loan
Supply personal and financial information for yourself and your cosigner (if you have one)
Select a fixed or variable interest rate and the length of loan term
Your lender will work with your school to certify the loan amount
The funds will ideally disburse before the start of your next academic term

3. Don’t forget about next year

Start the financial aid process early for your next year of school
Apply for “gift aid” such as scholarships and grants to lessen future borrowing
Consider private lenders offer multi-year approval to streamline ensuing applications

Alternatives to private student loans

While private student loans help many students and their families afford college, this route may not suit everyone.

If you want to avoid student loans entirely (or at least limit them), here are some alternative funding options:

Exhaust all federal options: Review your financial aid award letter to ensure you’ve maxed out all available financial assistance. If in doubt, reach out to your financial advisor. Often certain loans or programs are overlooked, such as work-study opportunities or unsubsidized federal loans.
Boost your savings account: It’s never too late to sock away money into a high-yield savings account. You can also open a 529 college savings account and encourage friends and family to donate funds via Gift of College or Ugift.
Consider community college: Attending community college first could potentially reduce your total student loan debt by thousands of dollars. Alternatively, you can apply to a low-cost university to save on tuition costs. You can always transfer to your dream school at a later date.
Look into a ‘no loan’ college: Many schools are trying to make education more affordable and accessible to all. Check out our list of 56 ‘no loan’ colleges to potentially eliminate your need for student loans.
Apply for grants and scholarships: Researching grants and scholarships can take time and effort, but receiving extra funds you don’t need to repay is worth it. There’s something for everyone, including full-ride scholarships, grants and scholarships for women, scholarships for Latino and Hispanic students and more.
Increase your income: Juggling college classes and a job can be a lot to manage, but even a few hours of work can make a difference. Look for a college job that pays well with flexible hours, or consider starting your own side hustle.
Trim your budget: Create a detailed budget outlining your monthly habits. Do you really need that fancy latte? Even if it seems inexpensive, remember that every little bit helps.

Frequently asked questions

To qualify for a private loan, you’ll need to attend an eligible school and meet the lender’s age, education or citizenship requirements, as well as credit and income criteria. Undergraduate students usually need to apply with a creditworthy cosigner.

Many lenders let you check your rates with an online prequalification that won’t impact your credit (as opposed to a more in-depth hard credit inquiry). Compare offers from a few different lenders to find the lowest rate for your private student loan.

Information usually needed to get a private student loan

Credit history
Valid ID
Social Security number
Employment and income verification
Tax documents
Bank account and asset details
Debt or payment obligations

If you have a cosigner, they will likely need to submit this information too.

Most private lenders require a minimum credit score before approving you for a private student loan. If you have limited or bad credit, you can boost your chances of qualifying by applying with a cosigner. Even if you can qualify on your own, adding a creditworthy cosigner to your application could help secure better rates.

Note that your cosigner will hold equal responsibility for the loan, and their credit will suffer if your loan falls into delinquency or defaults. Some lenders allow you to release your cosigner after a certain period of on-time payments.

For more information on this, check out our guide to student loans for bad credit.

Historically, about 9 out of 10 private student loans are borrowed with cosigners — creditworthy individuals who agree to repay the debt if the primary borrower falls behind. That’s because teens and 20-somethings often don’t have an adequate credit history to meet the underwriting standards of banks, credit unions and online-only lenders.

Even if you’re a rare case who could qualify on your own, including a cosigner could potentially lower your interest rate. Make sure you and your cosigner understand the legal obligations of repayment before deciding to team up.

And if you prefer to apply alone, check out student loans without cosigner requirements.

Each lender sets its own minimum and maximum borrowing amounts. However, just because you can borrow up to your remaining cost of attendance doesn’t mean you should.

Your loan balance, interest rate and loan term (definitions below) can dramatically impact the overall costs of a private student loan.

Balance

When you take out a student loan, your balance is the amount you borrowed. As interest accumulates, your loan balance grows. You might have several student loan balances, depending on how many loans you took out.

Interest rate

When you borrow a student loan, you agree to pay back your borrowed amount, plus interest. With the exception of federal subsidized loans, interest starts racking up from day one.

Private student loans can come with fixed or variable interest rates. Variable rates often start lower than fixed ones, but they can drastically increase over time.

Loan term

The term is the number of years it takes to repay your loan. Private loans are not eligible for federal repayment plans. Most private lenders let you choose a term of five to 20 years, though some have longer or shorter terms available.

Use the following questions to determine how much private funds you should borrow:

Question	Where to find the answer
How much do I need to borrow?	Estimate higher education costs using tools like the College Scorecard (or your financial aid award letter, if you have one)
How much will my student loan cost?	Plug potential borrowing scenarios into student loan calculators
Can I afford to borrow that much?	Utilize free resources like the Bureau of Labor Statistics to project your postgraduate wages

After applying for a private student loan, you should receive a formal approval or denial within days, sometimes hours. More likely, a customer service representative from your potential lender will follow up to provide a status update or request additional documentation.

If your application is rejected, the lender may describe ways to improve your chances, perhaps by including a cosigner.
If your application is approved, the lender will share forms to complete, and will contact your school to certify the loan amount.

If time is of the essence — perhaps your next semester or academic term is fast approaching — consult the preferred lenders on your list about how quickly you can expect an answer on your application. You might also consider emergency student loans for immediate financial needs.

U.S. law sets the federal student loan interest rates, which Congress then passes. The annual federal loan rates are based on 10-year Treasury notes plus a fixed increase. Each loan type has a predetermined loan cap in an effort to make interest rates reasonable for all borrowers. Furthermore, regardless of your credit score, everyone receives the same rate with federal student loans.

In contrast, private lenders utilize their own lending models to determine student loan interest rates.

A lender may consider the following factors when calculating your rate:

Your credit score
Your income (or job offer)
Your student loan terms
Your field of study
Current market trends